(If you are interested in my previous posts, f o l l o w m e!)
Welcome to post #14.
In the last one I told you that I would give you the one indicator you really need in your chart at the end of the last one. Seemingly a single line that's like a ‘lie detector’ for the entire marketplace.
It is known as Volume Weighted Average Price. It's a no-brainer, they all just say VWAP, which stands for "vee-wap.
Seems like a very technical and complicated process, doesn't it? It's really not.
The majority of beginners just put a random "Moving Averages" indicator on their chart because some random guy on YouTube said to do it. However, a regular moving average is a semi-intelligent algorithm. Simply averages the price of the stock from the past several hours. It doesn't matter how many 1 shares were traded or how many 10 million shares were traded.
VWAP isn't like that. It does consider the Volume actually.
It takes into account the actual number of shares bought and sold and computes the actual, exact average price that each and every person in the entire market paid for that stock today.
It's used by every single professional day trader and institutional computer algorithm, given that it's merely hard volume data. Which makes it become a self-fulfilling prophecy.
The only rule to keep in mind with VWAP: it is the ultimate line of tug.
When the stock price is trading above the VWAP, it indicates bulls are in control. The stock is strong. The people are making money.
When the stock price is stuck below the VWAP line, it means the sellers have the upper hand. The stock is weak. The majority of those who purchased today now find that they are losing money and are panicking.
Recall what Support and Resistance was in post #7? VWAP is similar to a big moving average floor or ceiling that moves throughout the day in line with the price.
If a penny stock rallies at 9:30 AM, drops, and remains below the VWAP for 2 hours, then do not touch it. I'm not worried about the price of it being cheap. It is dying.
But, what happens when a stock has been languishing below the VWAP all day, and then at 11:00 AM, it explodes upward with a ton of volume, and it pierces the VWAP line?
It's when professional attention is needed. The stock has just gone from a weak to a strong position. Now, if it reverses and sets up the VWAP line as a new support level, right? (Just as we discussed in post #9)? It's one of the best winning systems in the penny stock game as a whole.
So, now you have your candlesticks, your volume bars, your support and resistance floors, and your VWAP line. Your chart is pretty much a professional chart.
A chart is only a look at the past.
What about having a glimpse inside the market, and seeing the big, hidden sell orders waiting for you, before you ever get there?
In post #15, we'll be discussing data type #2. It is similar to the green scrolling text in the movie The Matrix, but it will save your life!